Development with a human face: experiences in social achievement and economic growth, edited by Santosh Mehrotra and Richard Jolly (Oxford: Oxford University Press, 2000, pp. 493, £14.99, p/b )

✍ Scribed by Robert Osei

• Book ID: 102351750
• Publisher: John Wiley and Sons
• Year: 2002
• Tongue: English
• Weight: 31 KB
• Volume: 14
• Category: Article
• ISSN: 0954-1748
• DOI: 10.1002/jid.857

✦ Synopsis

Much of the interest of the book from a policy point of view is in seeing whether the findings from the initial 'template' study of the 1976-78 Kenyan coffee boom can be generalized. In that study, coffee farmers were found to respond appropriately to their windfall income, with very high (66 per cent) savings rates. This undermines the argument for 'custodial' government intervention and supports the decision of the Kenyan government not to tax the windfall income. However, much of the windfall income was nonetheless transmitted to the public sector through existing trade and other taxes. Here, the Kenyan government appears to have behaved imprudently, raising spending to levels that were unsustainable after the boom.

How general are these findings? Is there a general pattern of 'private good, public bad' in dealing with trade shocks? The finding that private agents can respond appropriately to windfall gains from temporary trade shocks does appears to have held almost everywhere, although the magnitude of the savings response in Kenya was amongst the highest. By contrast, there can be no presumption that the public sector will embark on spending sprees from windfall incomes: the record of government management of shocks is very mixed. Often a more important distinction for savings responses than public-private is between direct and indirect appropriation of windfalls. When the initial windfalls do not accrue directly to the relevant exporter but are redistributed through the tax system, then there is more likelihood that information about the likely duration of the windfall is lost and inappropriate savings responses are made.

The over-riding message of the editors is that trade shocks need not be the shattering events viewed with such trepidation by Macmillan. Underlying this optimism is the simple theoretical argument-so counter-intuitive to students-that exogenous export price fluctuations can raise economic welfare. This is reinforced by the empirical arguments that positive commodity price shocks are more common than negative shocks and that the private sector can be trusted to respond appropriately. The absence of market failure and the risk of government failure thus provide no justification for the state to play a custodial role in handling temporary trade shocks. However, stating the conclusions so baldly provides no indication of these volumes' careful and sophisticated analysis of the complications caused by the many different control regimes and policy responses observed in practice.

This is a work that should be read by those working on the macroeconomics of developing countries, whether as researchers or policy analysts. The synthesis chapter is worthy of inclusion on the reading list of third year or post-graduate development economics courses, while the case studies should be of interest to country specialists. Countries covered in Volume 1 are Kenya,